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Ariel is one of the largest settlements Israel has built in the West Bank

Israel has approved the building of nearly 300 homes in a settlement deep inside the occupied West Bank, drawing criticism from the US.

The move also prompted the Palestinians to reassert their intention to pursue UN recognition of a sovereign Palestinian state in September.

The 277 homes will be built in Ariel, the largest West Bank settlement.

The announcement comes four days after the approval of 1,500 new homes for Jewish settlers in East Jerusalem.

Some 500,000 Jewish settlers live in the West Bank and East Jerusalem, territory captured by Israel during the 1967 Six Day War. There are about 2.5 million Palestinians in the same territory.

The settlements are deemed illegal under international law, although Israel disputes this.

'No vacancies'

"I'm very glad to get this permission," said Ron Nachman, the mayor of Ariel, which is home to 18,000 settlers. "We don't have a vacant apartment in the whole city."

A Palestinian government spokesman, Ghassan Khatib, said the plan to expand settlements was "new evidence that Israel is not serious about negotiating a two-state solution".

Speaking in Washington on Monday, US State Department spokeswoman Victoria Nuland called the Israeli move "deeply troubling" and "counter-productive" to the resumption of peace talks, which broke down last year over Israel's resumption of settlement building after a 10-month freeze.

Israel has recently moved ahead on plans to build more than 2,500 new apartments in East Jerusalem - which Palestinians want as the capital of a future state - and Israeli officials say 2,700 more will be approved soon.

The latest construction approvals could further complicate US efforts to persuade the Palestinians to give up their UN bid for recognition of a state along the 1967 lines, and enter negotiations with Israel instead.